2011 December » Tax Research UK

Now it’s time for real cultural, ethical, governance and management reform at HMRC

Dec 162011

A little over a year ago UK Uncut began its protests, and the world looked on, bemused. Unsurprisingly, I wasn’t: I knew they’d hit the zeitgeist, although they and Occupy have done so in ways I could never have imagined. It’s been my pleasure to support both movements in the last year.

Tomorrow is a mass day of action by UK Uncut. Vodafone remains a rightful target. And the pressure is working. As the Mail reports:

Deals struck with the tax authorities to wipe billions of pounds off company bills are to be investigated by a former high court judge.

Sir Andrew Park will scrutinise the tax settlements of ten companies – including Vodafone and Goldman Sachs – following allegations that agreements were made between the firms and Her Majesty’s Revenue and Customs to write off unpaid tax bills.

That’s the good news.

And it’s the right news we need to hear.

But we need do more than that. I’ve been interviewed a number of times this week on this them and my message is always the same. HMRC has been corrupted from the top down.

It’s been corrupted by neoliberal corporate thinking. It’s been corrupted into thinking taxpayers are customers. They’re not.

It’s been corrupted as a result into thinking that tax law is just a contract for services. It’s not.

It’s been corrupted into thinking that a contract can be varied by consent of the parties, so the operation of tax law is optional at its whim. It’s not.

It’s been corrupted by people who do not know about tax but do come, especially in the case of some non-execs, from environments where tax abuse is normal, and even rewarded.

It’s been corrupted by a cult of personality around Hartnett, that he came to believe.

It’s been corrupted by cowardly politicians who do not believe in the state and its right to tax.

And it has to be reclaimed, from the top down for the people of this country so it does its job properly.

So that it collects as much as possible of the missing £95 billions that could pay for the services we need.

So that it creates a level playing field so that all businesses can compete in this country knowing their competition can be expected to pay tax and not undercut them by tax abusing, unlike now where a deliberate competitive advantage is given to the tax cheats.

So that it is seen to offer fair play, and have enough staff to ensure that this is seen to be done in the communities it serves and supports.

So that never again is it captured by big business in its interests.

So that never again does it try to avoid its duty to parliament.

So that never again does it serve the interests of its board.

This can be done.

The question is – will it be done?

The answer is key to our economic, social and cultural future in this country. It’s a choice between prosperity, ethics and fairness and living in a criminogenic state.

I know which one I want.

Your’s struggling but UK companies’ cash has gone up by 40% since 2008

Economics 5 Responses »

Dec 162011

You are struggling.

The economy is struggling.

The government is struggling to balance its books.

But as the FT reports today:

UK companies (non-financials at least) are in a better place. According to analysts at Shore Capital, UK companies’ cash flow has grown 40 per cent since the depths of the financial crisis at the end of 2008.

So let me offer two explanations.

First, recession is good for very big business: they’ve slashed costs and wages, and floated their profits offshore.

Second, they don’t want that to change so they argue for its continuation - hence their support for Osborne’s suicidal economic policies.

Third, as Aditya Chakrabortty argued in the Guardian this week (admittedly with regard to banks, but he could have made the same point more widely) because Labour lives in fear of big business:

It means that opposition to the rule of banks isn’t found in Westminster, but in tents outside St Paul’s or among a few grizzled academics and NGO-hands – with no political vehicle to carry them. Meanwhile, the politicians declare that the national interest of Britain can be defined by what suits one square mile of it.

I’m happy to be one of those NGO-hands.

I just wish politicians would join in.

To read more, the answers are here.

And join the protests.

LINO – Labour In Name Only

Economics, Labour 17 Responses »

Dec 162011

I find the likes of Martin Kettle extremely annoying. Displaying extraordinary small mindedness, and a willingness to kow-tow to bankers and economists of the sort Simon Jenkins rightly condemns in the Guardian today Kettle argues on another page of the Guardian today that:

So much now depends on Ed Miliband. Only he can tell the Labour party, in the absence of an international boost of demand which shows absolutely no sign of coming, that a Labour Britain would have to cut its coat according to its cloth. Only he has the authority to tell his party that Labour’s general election offer to the voters will involve no net extra current expenditure, and maybe even less. Only he can tell his shadow ministers to focus on radical manifesto ideas that involve no more money. It’s an incredibly tough call for any Labour leader. Nevertheless, these are incredibly tough times. Whether Miliband is up to it is unclear. But the task is urgent and unavoidable and it will define him one way or the other.

This is simply not true. I will give my almost obligatory reference to The Courageous State for those wanting a fuller explanation, let’s deal with the core of this now.

First, there is a £95 billion tax gap to be tackled. How dare he say there’s no money? Of course there’s money. What Kettle’s saying is that he would rather that money be left with the crooks, the cheats and the straightforwardly criminal than be collected top pay for the services we need. That’s a choice by him: a choice to support criminality over public services and a choice that those who are criminal should be rewarded. It’s not just lazy to ignore this. it’s candidl;y and quite literally criminal to do so.

Second, Kettle reveals a remarkably small mind. Money can be printed. We can print as much of it as we need. We let banks do so to fuel a consumer boom. We can do so to meet social need. There is no risk whatsoever of internally generated inflation of we were to do so: you don’t have internally generated inflation when there are falling net wages and 2.64 million unemployed. So he is negligently ignoring a reality here. He is choosing to make people unemployed to avoid a fiction: the risk of inflation. That makes him a friend of the 1%.

Third, Kettle shows he has not the faintest idea about the real economy. People generate wealth, not money. It is labour – the process of people working to exchange with each other, which is the foundation of an economy. It is the job of economics and politics to liberate them to do so. But he’d rather they were forced into unemployment, and demands a Labour government that would do just that, to make sure that the failed edicts of neoliberal economics are supported (edicts that Jenkins has seen right through, to his credit). How dare he suggest that Labour should sacrifice the people of this country to such a failure?

Kettle is the sort of person Labour needs to be rid of. They’re LINO – Labour In Name Only.

What we need is a Labour Party that stands up for people. That says it will collect tax owing. That says it believes it is its job to get people back to work – and as people like Krugman, Stiglitz, Wolf and Sam Brittan argue, should borrow to do just that. And it’s a party that says the bankers and their friends have got it very, very wrong, as the people of this country instinctively know.

Labour won a by-election yesterday. That’s good news, and the swing to them was welcome. But not being the Tories is not enough. Labour has to offer a radical economic agenda to win through for this country. If not we faced decades of despair.

And to start it should be telling people in its ranks like Kettle to go forth and join the Coalition, which is where they belong because candidly the last thing we need is another New Labour regeneration - ever.

We’re in recession for a reason – that people aren’t paid enough

Economics 27 Responses »

Dec 152011

As the FT reports this morning:

“We are the 99%”, the slogan of Occupy Wall Street, is a reference to the rising wealth of the top 1 per cent of US income distribution. But an equally valid slogan might be: “We get 58%”.

That figure is the share of US national income that goes to workers as wages rather than to investors as profits and interest. It has fallen to its lowest level since records began after the second world war and is part of the reason why incomes at the top – which tend to be earned from capital – have risen so much. If wages were at their postwar average share of 63 per cent, workers would earn an extra $740bn this year, about $5,000 per worker, according to FT calculations.

And you wonder why people are angry? They know the system is abusing them, because it is. And they know that this is straightforward exploitation. Because it is.

And it’s worse in the UK. Our labour share is 53% (from memory).

No wonder Occupy resonates.

Now, where’s the Labour Party?

Banker contempt

Banking 6 Responses »

Dec 152011

FT Alphaville has reported this morning that:

A senior UBS private banker allegedly sanctioned the creation of an illegal offshore investment vehicle for one of India’s most powerful businessmen, saying that Anil Ambani’s status as a “mega-client” could justify waiving the rules, a London tribunal has been told.

The FT says the claim, contained in email evidence submitted to the hearing this week, has been made in a case brought against two of UBS’s former wealth management executives by the UK’s financial regulator.

The evidence shows that Kurt Kumschick, the Swiss bank’s recently deceased former marketing head for wealth management in the India-Pacific region, told two junior colleagues that whether the bank should create the Mauritius-based investment vehicle for Mr Ambani would be a “business decision” if the bank could not confirm its legality under Indian law. Mr Kumschick died this week, according to UBS officials. His estate has no representation at the tribunal.

Now, I stress, it’s just an allegation.

But we’ve seen this attitude to the law too often from financial services companies. And the penalties need to be very high indeed.

Despite Global Financial Crisis, Illicit Financial Outflows from Developing World Remain High

Task Force on Financial Integrity and Economic Developm, Tax evasion, Tax Havens 2 Responses »

Dec 152011

Developing countries lost US$903 billion in illicit financial outflows in 2009 despite the massive slowdown in economic activity which rocked world markets in late 2008, finds a new study by Global Financial Integrity (GFI), a Washington-based research and advocacy organization and partner of Tax Research UK in the Task Force on Financial Integrity and Economic Development.

The new report, “Illicit Financial Flows from Developing Countries over the Decade Ending 2009,” is GFI’s annual update on the amount of money flowing out of developing economies via crime, corruption and tax evasion, and it is the first of GFI’s reports to include data for the year 2009.

“This is a breathtakingly large sum at a time when developing and developed countries alike are struggling to make ends meet,” said GFI Director Raymond Baker. “This report should be a wake-up call to world leaders that more must be done to address these harmful outflows.”

While US$903 billion marks a drop from the US$1.55 trillion¹ that illicitly flowed out of the developing world in 2008, the study finds the decrease is almost entirely attributable to the global financial crisis rather than any governance improvements or economic reforms.

The study, which was co-authored by GFI Lead Economist Dev Kar and GFI Economist Sarah Freitas, tracks the amount of illegal capital flowing out of 157 different developing countries over the 10-year period from 2000 through 2009, and it ranks the countries by magnitude of illicit outflows. According to the report, the 20 biggest victims of illicit financial flows over the decade are:

China ………………………………………$2.74 trillion
Mexico ……………………………………..$504 billion
Russia ……………………………………..$501 billion
Saudi Arabia ……………………………$380 billion
Malaysia ………………………………….$350 billion
United Arab Emirates………………$296 billion
Kuwait ……………………………………..$271 billion
Nigeria …………………………………….$182 billion
Venezuela ……………………………….$179 billion
Qatar ……………………………………….$175 billion
Poland ……………………………………..$162 billion
Indonesia …………………………………$145 billion
Philippines ………………………………$142 billion
Kazakhstan ……………………………..$131 billion
India ………………………………………..$128 billion
Chile ………………………………………. $97.5 billion
Ukraine …………………………………..$95.8 billion
Argentina ………………………………..$95.8 billion
South Africa …………………………….$85.5 billion
Turkey……………………………………..$79.1 billion

For a complete ranking of average annual illicit financial outflows by country, please refer to Table 5 of the report’s appendix.

We need capital controls now

Economics 6 Responses »

Dec 142011

On Monday the Bank of England argued:

Imperfect information among investors is often at the root of financial instability. In the presence of imperfect information, poorly-informed investors’optimum strategy may be to mimic the actions of others,which may amplify movements in exchange rates and capital flows. Individual countries can take a number of actions to reduce the impact of imperfect information, including by improving financial regulation; better disclosure rules;implementing counter-cyclicalmacroprudential policies;and improving their capacity to identify — and consequently, mitigate — vulnerabilities on their national balance sheets.

These reforms, however, will largely deal with the financial sector only. And there is a risk that much tougher domestic banking regulation will lead to higher non-bank, cross-border and foreign-branch lending. In these instances, there may be a case for prudential capital controls, such as taxes on foreign borrowing. These could increase the effectiveness of financial sector regulation and level the playing field between domestic and foreign lenders. The 2011 coherent conclusions on capital controls agreed by the G20 are welcome, as a means to promote a common understanding of the appropriate use of capital controls. But capital controls may not be very effective in countries with highly developed financial systems; they may also introduce unwanted distortions.

It is striking that there is very limited surveillance of the risks associated with the structure of a country’s national balance sheet. In the event of a negative shock, investors can be very uncertain about the vulnerability of individual countries, increasing their susceptibility to sudden capital flow withdrawals induced by herding behaviour. This would suggest that a better understanding is required of what shock, or combination of shocks, might cause the nation as a whole to become credit constrained. Countries should seek to achieve this, in conjunction with the IMF and BIS (see Section 5.2).

Today we know that unemployment is rising, without reason, and solely to meet the demand of bond markets.

And we know that attempts to appease those markets in the context of the Euro are failing.

We have three ways out of the current mess.

One is war. I don’t like it.

One if inflation. I accept it. The Germans don’t. It won’t happen.

The third is Jubilee- the waver of debt claims. This has to happen if the first two can’t. There is no other way to restore sound money.

But that can’t happen when bond and other markets function as at present – fuelling misinformation and ceasing to be independent variables in the equation which they supposedly are meant to be.

Capital controls will have distortionary effects. Of course they will. But everything is going to have distortionary effect right now and if markets behave as at p0resent they’re delivering the worst outcome. Capital controls – and heavy market regualation – will produce vastly better results.

When will we learn that?

Jersey – hoping on an EU failure

Jersey 6 Responses »

Dec 142011

Jersey seems to think the UK’s falling out with the EU could be good for it. I doubt it.

Of course, if the UK leaves the EU then life gets easier for Jersey - none of the EU’s directives will apply to it then and the rules of the game change. No doubt Jersey would love that. But it’s very unlikely to happen. I don’t see us leaving the EU.

If then, as is is more likely Cameron and the UK stay in Europe, sympathy with the UK and its financial system will be low. In that case Jersey should expect the going to get much much tougher.The odds are stacked against the UK and its tax havens. In that case Jersey may have got it all wrong, again.

As I think likely.

It’s time to do a little more repining

Ethics Comments Off

Dec 142011

This is a little off beat, but excellent, by poet Alice Oswald in the Guardian a couple of days ago on her reasons for withdrawing from the T S Elliott prize of the Poetry Book Society:

I think it’s often assumed that the role of poetry is to comfort, but for me, poetry is the great unsettler. It questions the established order of the mind. It is radical, by which I don’t mean that it is either leftwing or rightwing, but that it works at the roots of thinking. It goes lower than rhetoric, lower than conversation, lower than logic, right down to the very faint honest voice at the bottom of the skull. You can hear that voice in a letter written by the 16th‑century poet Thomas Wyatt to his son: “No doubt in any thing you do, if you ask yourself or examine the thing for yourself afore you do it, you shall find, if it be evil, a repining against it. My son, for our Lord’s love, keep well that repining …”

That is the best instruction you could ever give a poet: whether you’re examining a bad line in a poem or a bad motive for action, keep well your repining – meaning don’t ignore the honest muttering in your head.

We need a great deal more repining, I suggest, if we are to make progress as a society.

Disclosure (although not very relevant): I am a member of te Poetry Book Society and recommend it, even if I share Alice Oswald’s concerns.